JPMorgan Should Not Have To Pay For The Sins Of Bear Stearns And Washington Mutual
Why should JP Morgan pay for crimes it did not commit itself? After all, these lousy securities were not sold by JPM to the housing authorities. They could properly argue they were not aware of all the troubles they were assuming in the bailouts of these two troubled firms.
To my way of thinking JP Morgan should pony up whatever losses the bank caused for FNMA and Freddie Mac for the mortgage securities its own employees put together and flogged for prices that were not going to stand up in the meltdown. That would be a fair assumption of guilt to make good on.
Overkill is not called for here. Yes, the regulators are late on the curve for going after the big banks for their sins. The government has looked bad spending hundreds of billions to save Wall Street in order for the banks to show extraordinary profits, while the middle class was getting squeezed and unemployment was really 14%.
Playing catch up appears to have infected some regulators with the revenge factor. That’s understandable. The public have been waiting 4 long years for retribution against Wall Street. As the biggest target, JP Morgan must pay a whopping fine for falsely reporting the loss on the “London whale” trades made with the bank’s own money. This is fair and square. After all, it underscores the finding that the risky, highly leveraged proprietary trading by too-big-to-fail banks is a real danger to the system. Rogue traders with access to a vast pool of money and poorly supervised can indeed cause mayhem. Dimon had no effective risk control system and no 24 hour a day 7 days a week scrutiny of all the bank’s positions. More than sloppy. Pay up Jamie.
The government appears to be in overkill mode as the public has been braying for blood from the too-big-to fail banks they helped survive with transfusions of hundreds of billions of bailout money. This is understandable in the sense of the revengeful feelings of the middle class and the people who are out of work and out of home.
The baring of JP Morgan’s errors and omissions and false reporting of the losses from the huge illiquid trades in London do require a meaningfully huge financial penance. The invulnerability of boss Jamie Dimon has put him in a very unfavorable spotlight. The government should demand retribution for the crimes committed by The House of Morgan, not two mediocre financial institutions picked up on the cheap when the world was falling apart.